What Is ERP?
Enterprise Resource Planning is a system used to stabilize business operations. Also known as ERP, it integrates different processes and parts of your business and ensures that they run as efficiently as possible. It helps organizations streamline processes on business intelligence, inventory and order management, financials and accounting, human resources, and customer relationship management (CRM), thus providing a holistic view of the business from a single information architecture. ERP systems are significant to both large organizations and small- and medium-sized enterprises (SMEs). ERP manages a business and improves productivity through:
- Business Intelligence: Provides user-friendly reporting and analysis tools that contribute to smart and rational decisions
- Inventory and Order Management: Organizes processes related to manufacturing, purchase, inventory, and sales orders
- Financials and Accounting: Keeps track of cash flows, accounting, and assets
- Human Resources: Streamlines processes on benefits, payroll, and other onboarding tools.
- Customer Relationship Management: Enhances customer service and creates opportunities for different sales strategies
Features of ERP
The basic and most important feature of an ERP system is its shared database. Because it integrates different parts of the business, it is essential for the system to have a comprehensive data structure that can be accessed by the different teams. It has to display similar and recent data as it is critical in business decisions. As an example, the sales and the accounting departments should be able to see the same figures and these figures must also be in line with those of inventory management. Likewise, figures on financial and cash flows should also be parallel with data on the payrolls and other human resources processes.
Another important feature of an ERP system is its synchronized and automated reporting tools. When different teams usually have their own databases, spreadsheets, and records, an ERP system provides a single information and IT reservoir that houses reports and data on different business processes. As such, it becomes easier to access data and make business decisions since there is no need to consolidate datasets and systems from different teams. Processes related to sales orders and human resources are directly accrued to financials and accounting. In parallel, an ERP system also provides portals and dashboards to track performance of the business according to certain metrics and KPIs.
In order for your business to have an efficient ERP system, you first have to understand all business processes that you want to improve. This is essential in helping you customize ERP software systems to cater the your business needs. Currently, ERP software has three different forms: generic, pre-configured, and installed:
- Generic – In essence, an ERP software is generic and can be used by different industries. As such, it has to be configured for your business before it can be used.
- Pre-Configured – Other ERP software have pre-configured templates that were developed from more comprehensive software. These templates are designed for specific industries (e.g. retail, automotive) or for companies of different sizes (SMEs and large corporations).
- Installed – After a generic or pre-configured package has been designed for the requirements of a particular organization, the ERP software then becomes ready for operational installation.
To further illustrate the business impact of ERP systems:
- An ERP system helps mitigate regulatory risks as it integrates compliance information of all business functions
- An ERP system allows companies to identify problems and make smarter business decisions through its real-time information on all aspects of the business
- An ERP system automates business functions related to procurement and payment, order and delivery, and cash processes.
- An ERP system provides relevant customer service through its billing and customer relationship processes
How to Choose an ERP system
Whether you are a large business or a small- and medium-sized enterprise (SME), choosing an ERP system requires careful deliberation.
- Create a comprehensive list of requirements for an ERP system
- Carefully study the requirements of your project and business. See the business processes and system requirements that you need so that your vendors can also provide details in their proposals. Consult other stakeholders to make sure that their needs are also met by the ERP system.
- Get references and reviews
- To help you decide which ERP system to adopt, ask your vendor for references. Understand the experiences of their other customers as this will guide your decision.
- Consider the level of customization needed
- Because customization has a financial implication, you have to prioritize particular requirements over the others and see which ones can be implemented at a later time.
- Consider changes in your organization
- As having an ERP system improves processes in your business, it is also important to manage its impact on the culture of your company and the employees that you have.
The concept of ERP dates back to the year 1960. Software engineers saw the need to create a management system that improves manufacturing processes by keeping track of materials used on different processes. This inspired the Material Requirements Planning (MRP) systems in the 1970 that streamlined production processes and calculate materials needed.
This then evolved into MRPII in the 1980s, which included features on sales planning, scheduling, and capacity management. Although it has improved manufacturing planning for organizations, improvements still have to be made on tracking profitability and customer satisfaction, since they also have a big impact on the enterprise. In the 1990s, software has also included other organizational processes, such as finance and human resources. This led to the Enterprise Resource Planning system available today.
The ERP systems today had integrations on advanced Business Intelligence (BI) functions, sales automation process, and other complex and relevant functions. As the systems get more advanced, they become fit for a wider range of industries like distribution and e-commerce.
Given the advancement in ERP systems, businesses, including smaller ones, have seen the value of the system in their processes. Because cloud-based, software-as-a-service providers have created ERP products that are easier to install and navigate, organizations now can choose which system best suits their business. Also, executives and founders are able to make smarter decisions for the growth of their business through the real-time reporting and business intelligence functions of ERP systems.